Improving Order Fulfillment Performance through Integrated Inventory Management in a Multi‐Item Finished Goods System

Abstract

Effective inventory management is fundamental to order fulfillment excellence and supply chain success. In this paper, we develop a strategic inventory management decision tool that integrates inventory classification and inventory control policy decisions for maximizing order fulfillment performance, while accounting for a constraint on inventory budget and the profit expectation of a firm. This inventory solution tool provides critical enhancements to current inventory planning software, which is developed upon the traditional inventory classification scheme and where practitioners have to balance service levels and safety stock decisions through trial‐and‐error. The model allows firms to assess whether the current inventory performance is Pareto optimal, quantify the trade‐offs between various performance measures, and identify the right inventory level according to the firms' strategic goals. In computational results, we demonstrate the trade‐off and positive relationships between key item‐ and order‐based inventory performance measures and short‐term profitability under different levels of inventory budget in a multi‐item finished goods inventory system.

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